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Interest Rates and the Durability of Consumption Goods

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  • Harry Mamaysky
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    In this article I study an economy with irreversible durable investment and investors who consume a durable and a nondurable good. In a general equilibrium setting, these assumptions lead to endogenous variation in the implied risk aversion of investors and in the term structure of interest rates. In the model, the magnitude of the intertemporal elasticity of substitution places certain restrictions on the joint dynamical behavior of durable consumption, nondurable consumption, and the yield curve. Tests of the model using postwar U.S. data are supportive of these restrictions. However, while the model is able to generate a relatively large term spr

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    Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm224.

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    Date of creation: 01 Sep 2001
    Date of revision: 01 Jan 2002
    Handle: RePEc:ysm:somwrk:ysm224
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